Segregated Funds, are also pooled investments that benefit from diversification and professional management as well as having an element of insurance protection.
Similar to mutual funds in many respects is a segregated fund. These funds are deposited with an insurance company, who in turn invests the money in a diversified portfolio of investments with professional management depending on the objective of the particular fund. Seg funds (like mutual funds) can provide great diversification for an investor. Like mutual funds they provide a variety of options for investors. However, unlike mutual funds, Seg funds provide a principle guarantee. The deposit is insured by the insurance company and upon maturity (or death) 75% or 100% (depending on the contract) is guaranteed. Seg funds generally carry slightly higher fees than comparable mutual funds due to the insurance on the principle. Seg funds also have an array of estate planning benefits that can drastically decrease taxes owing upon death.
- Guarantee of principle; either 75% or 100% of the principle upon maturity or upon death.
- Beneficiary designation
- Estate taxes and probate are avoided
- Possible creditor protection
- Privacy. Beneficiary information is not made public upon death
- Return is not guaranteed
- Slightly higher fees than comparable mutual funds.
As part of our estate planning process, I encourage investors to seriously consider the benefits of Seg Funds, particularly if they are considering leaving something monetary to the next generation. Money is available today for use as needed, but also guaranteed for the beneficiary. Many second generation clients appreciate the benefits Seg funds offered their parents, as they saved thousands of dollars on their inheritances by avoiding the probate and executor fees using Seg funds. Should markets be down significantly upon someone passing, Seg funds may be topped up by the insurance company as per the guarantee attached.